We study the urban structure of the City of Detroit. Following several decades of decline, the city's current urban structure is clearly not optimal for its size, with a business district immediately surrounded by a ring of largely vacant neighborhoods. We propose a model with residential externalities that features multiple equilibria at the neighborhood level. In particular, developing a residential area requires the coordination of developers and residents, without which it may remain vacant even if its fundamentals are sound. We embed this mechanism in a quantitative spatial economics model and use it to rationalize current city allocations. We then use the model to examine existing strategic visions to revitalize Detroit. We also explore alternative plans that rely on development guarantees, and find that they could result in greater population growth and land price appreciation than existing plans. The widespread effects of these policies underscore the importance of using a general equilibrium framework to evaluate policy proposals.
The views expressed herein are those of the authors and do not necessarily represent the views of the Federal Reserve Bank of Richmond, the Federal Reserve System, or the National Bureau of Economic Research. We thank Daniel Schwam and Daniel Ober-Reynolds for outstanding research assistance and seminar participants for useful comments.
Rossi-Hansberg was a long-term consultant at the Richmond Fed while writing parts of this paper. This relationship did not affect the research or conclusions presented in the paper.
Raymond Owens III & Esteban Rossi-Hansberg & Pierre-Daniel Sarte, 2020. "Rethinking Detroit," American Economic Journal: Economic Policy, American Economic Association, vol. 12(2), pages 258-305, May. citation courtesy of